Educational Articles

Coverage Initiation: Envision Healthcare Holdings

Iason Dalavagas
| June 10, 2014

Value Line has initiated coverage of Envision Healthcare Holdings (EVHC) in its flagship product, The Value Line Investment Survey. The company is a provider of physician led, outsourced medical services in the United States. The company has more than 20,000 affiliated clinicians and offers a broad range of clinically-based and coordinated care solutions across the patient spectrum, from medical transportation to hospital encounters and comprehensive care solutions. Envision was formerly known as CDRT Holding Corporation, and changed to its current name in June of 2013. The company is headquartered in Greenwood, Colorado, and has about 18,660 employees.

Envision markets its services under itsEmCare andAMR brands. EmCare has been in business for 40 years and has about 8,000 affiliated physicians and clinicians. It provides integrated facility-based services, including emergency, anesthesiology, hospital/inpatient care, radiology, and surgery. AMR has more than 55 years of operating history and has more than 12,000 paramedics and emergency medical technicians, including emergency, non-emergency, managed transportation, air ambulance, and disaster response services. The company has developed the largest network of ambulance services in the United States, along with a leading position in other medical transportation services. The healthcare provider treated and transported 2.8 million patients in 40 states last year. Revenue generated from emergency ambulance services accounted for 61% of total revenues in 2013.

In 2012, management expanded its EmCare services to include Evolution Health, which provides comprehensive care across various settings, including patients who suffer from advanced illness and chronic diseases. Some of Envision’s key customers include healthcare facilities, attending medical staff, independent physician groups, and government agencies.Envision receives payment for its services from several sources, including federal and state governments, primarily under the Medicare and Medicaid programs, health maintenance organizations (HMOs), private insurers, hospitals in the form of subsidies, and individual patients.

The market for outsourced emergency department staffing is highly fragmented, with more than 1,000 national, regional, and local providers handling nearly 130 million patient visits last year. Of the nearly 5,000 hospitals in the United States that operate their own emergency departments, roughly two thirds outsource their emergency department physician staffing and management. Of this group, about a third contract with a national provider, with the remainder coming from a local or regional provider. The company’s largest competitor is Team Health (TMH). Other competitors include Hospital Physician Partners, Schumacher Group, and California Emergency Physicians.

The markets for anesthesiology, inpatient, and radiology services is also very competitive and fragmented. Envision has a 1% to 2% share of the anesthesiology services market. Team Health, Sheridan Healthcare, Premier Anesthesia, North American Partners, and NorthStar Anesthesia are its primary competitors in this segment. For inpatient services, the market leaders are Cogent HMG, Apogee, and MEDNAX (MD), who each have a 3% market share.

Some of the risks that Envision faces arise from the impact of the recent healthcare reform legislation. Given the fact that the healthcare industry is currently subject to changing political and regulatory influences, the way and amount in which the company is reimbursed could change significantly. The impact of certain provisions of the law are also uncertain at this time. We note that the potential increase in the number of individuals signing up for health plans could boost revenues and earnings, so there are some encouraging factors with the new law. Another risk facing the company is its substantial indebtedness. As of March 31, 2014, Envision had nearly $1.9 billion in long term debt on its balance sheet, or roughly 55% of total capital. This will require a considerable amount of cash to service this debt.

Business prospects at Envision are sound. The company reported a good start to the year, with revenues in the first quarter up 14% from a year ago, driven by new contracts at EmCare, Evolution Health, and AMR. This healthcare outfit has also been benefiting from early indications of healthcare reform benefits. A continued shift from self-pay to Medicaid in expansion states should continue to support solid earnings going forward. Subscribers interested in learning more about this health care services company are advised to consult Value Line’s quarterly reports for Envision, as well as any supplemental reports and relevant articles that may arise as important news comes to light.

At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.